Together for 1.5
Removing the price cap on household energy prices for above-average consumers in 2022 led to a significant decrease in energy consumption and gave a boost to energy-efficiency improvements in Hungary. Measures like this should be taken into account in view of the NECPs revision.
– State price regulation for utility prices (gas, electricity) for above-average consumer households was removed in August, 2022.
– More realistic prices led to an immediate decrease in consumption and boosted energy-efficiency improvements, showing a great potential for sufficiency.
– Energy poverty is still not addressed properly: the remaining subsidies should be differentiated based on social income levels: monetary support should be provided for vulnerable households and partly targeted to energy-efficiency improvements.
In Hungary, regulated energy prices (gas and electricity) were introduced for households in 2013. Because of these capped prices, energy prices fell by a quarter in 2013–2014. The price reduction was unified, not differentiated according to household income level or consumption.
The regulated prices have had several negative consequences: the programme generated substantial residential excess energy use (about 13 PJ of excess consumption), and higher income deciles benefited the most from the lower prices, compared to lower income households using lower quality fuels (e.g. firewood) sold at market price. Hungary reported some of the worst progress in energy efficiency in the periods of 2000–2014 and 2014–2019; energy efficiency barely improved in the latter period.
Better later than never, in August 2022, the price cap was removed for above-average energy use. Under the decree, households are eligible for the current capped power price on electricity usage up to 2,523 KWh per year, and on gas, 1,729 cubic metres per year, above which a price close to market prices applies, bringing a two-to-seven-fold increase in prices.
The price increase led to a significant drop in energy consumption – for example, Hungarian natural gas consumption fell by 30% year-on-year in January 2023, while electricity consumption fell by nearly 10% for the same period. More than 80% of the reduction was due to energy savings and about 20% to the milder weather. Also, the interest in energy-efficiency improvements and renewables grew significantly within the population. This proves that if prices are realistic, there is a great potential for sufficiency.
However, this measure is still far from a just and fair solution. The remaining price cap for below-average energy consumption is still applied to each household, undifferentiated for social income groups. To properly address energy poverty, only the needy should receive financial support, and for them, too, energy efficiency improvements with a long-lasting impact should be prioritized.
Overall, the real price of energy must be paid – including all the externalities of energy production –, which will push towards sufficiency. Nothing else is sustainable in the long run.